Sugar Market Report for 21 March

Good morning,

The market improved on Friday ending at the top end of the recent range and filled the chart gap formed last Tuesday but the trading volume remained woefully low. The market opened 5 points firmer but soon started to slip hitting the day’s lows soon after the opening. However, the support at 18.50 was still in place and, as crude continued to improve, sugar prices also improved back to opening levels. Prices remained within a narrow 9 point range until early afternoon when prices started to improve further and, eventually, filled the char gap up to 19 cents but failed to push through the level. Some late day-trader liquidation saw prices drop back but it was a positive performance after prices were under pressure for most of the week. The KN improved 4 points to end at +12 while the NV also finished 4 points better at -3. In London the structure continues to improve with the KQ ending over $2 firmer at +15.60 while the QV was $3.50 firmer ending at +12.20. There would appear no serious tightness in white sugar – indeed some traders still see limited demand. Nevertheless, the WP is improving above refiners costs with KK WP ending very firm at 117.30. The VV WP was also a tad firmer at 93.00. A near inside day as the support at 18.50 held for the fourth session and suggests prices may improve further especially as crude pulls off its lows. At the moment the larger than expected Indian production is being countered by the view that Brazil will produce more ethanol for the cane when the CS harvest starts next month. Whether this turns out to be the case is debateable but with crude prices remaining very volatile it remains a major factor in the market.

The COT as of the 15^th March showed that the funds/specs had cut the net longs by 51,153 to 88,158. This cut was expected although many maybe surprised by the extent as prices dropped by 86 points from the 4 month highs. The non-commercials cut the net longs by 42,368 to 56,723 which is a very swift turnaround after adding over 63k lots the previous week. It does suggest they are not wholly convinced that sugar prices will rally significantly. It might be argued that the market would have remained around current levels if it had not been for the fund activity. However, it gave the Indians and Thais the opportunity to price. The commercials cut the net short position by 14,997 as the trade covered shorts as prices dropped. An odd large increase in the Index net long position which increased by 36,156 to 238,984 with over 32k lots being added to the gross long. This suggests a change in categorising of some positions.

This morning the market opened 7 points higher but quickly improved another 10 points on market on opening speculative buying. Further buying sees prices, currently, 20 points firmer. The KN is 1 point better at +13 while the NV is also 1 point better at -2. In early London trading the KQ is firmer again trading at +16.70 while the QV is unchanged at +12.30. The macro is a positive picture this morning with most commodities firmer with crude leading the way currently up over 4%. The USD Index is unchanged while the BRL ended the week strong at 5.220. Sugar looks likely to continue to follow crude although much will depend on the funds reading of the market. Their recent hasty liquidation of positions suggests they may not be so keen to reinstate longs immediately. Nevertheless, they are unlikely to liquidate further while crude remains firm. Producer selling will be waiting above the market but, probably above 19.50. Therefore, the market looks set to remain firm but whether a visit back to the highs is seen is probably unlikely but with uncertainty continuing the haunt all markets nothing should be ruled out.